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RATES MIXED: Results
of Bankrate.com's June 7, 2006, weekly national survey of large
lenders and the effect on monthly payments for a $165,000 loan: |
Numbers spoke louder than words this week as long-term
mortgage rates fell.
Ben Bernanke, chairman of the Federal Reserve, caused
bond yields to rise when he implied that the central bank might
raise short-term interest rates again. But in the mortgage world,
Bernanke's words were considered just that -- mere words, subject
to interpretation.
The thing that moved mortgage rates came a few days
before Bernanke's speech, in the May employment report. It needed
little interpretation. Job growth was weak, when Wall Street had
expected it to be strong. Bond yields tumbled, and long-term mortgage
rates followed.
The benchmark 30-year fixed-rate mortgage fell 3 basis points
to 6.69 percent, according to the Bankrate.com national survey of
large lenders. A basis point is one-hundredth of 1 percentage point.
The mortgages in this week's survey had an average total of 0.35
discount and origination points. One year ago, the mortgage index
was 5.61 percent; four weeks ago, it was 6.67 percent.
The 15-year fixed-rate mortgage fell 1 basis point to 6.31 percent.
The 5/1 adjustable-rate mortgage rose 3 basis points to 6.32 percent.
The rate-moving trio
Mortgage rates tend to move up and down with Treasury yields, which
in turn move up and down in reaction to a lot of economic factors.
Lately, Treasury yields have been especially sensitive to three
of these: the Consumer Price Index, the monthly employment report
and decisions of the Federal Reserve's rate-setting committee. The
latter two came into play in the past week.
First came the May
employment report, in which the Labor Department said that the
economy grew by a net 75,000 jobs last month. That's fine if you're
one of those 75,000 people, but investors were dismayed, because
they had expected the number to be around 170,000. Wall Street expected
the employment report to rumble like a Harley, but it putt-putted
like a Vespa.
"Dear Mr. Bernanke: You wanted weakness, you got weakness,"
wrote economist Joel Naroff, adding that job growth in May was "extremely
disappointing." He said it was ominous that the preliminary
estimates for job growth in March and April were revised downward.
Given the anemic job growth, it's no surprise that
hourly income barely budged upward and the average workweek was
six minutes shorter. The employment report painted a portrait of
a modestly growing economy in which inflation shouldn't be much
of a threat. Investors concluded that the odds were against another
Fed rate increase at the end of this month. The yield on the 10-year
Treasury note fell 11 basis points, hinting at a corresponding drop
in the 30-year fixed mortgage rate.
Inflation concerns reappear
Three days later, Bernanke spoke
in Washington at the International Monetary Conference, and he complained
about inflation. He said core inflation -- consumer prices minus
volatile food and energy costs -- might be "at or above the
upper end of the range that many economists, including myself, would
consider consistent with price stability and the promotion of long-run
growth." He called recent price trends "unwelcome developments."
Wall Street saw this as a signal that the Fed is likely to raise
the federal funds rate again June 29. The yield on the 10-year Treasury
rose only a couple of basis points, because the long-term outlook
for inflation is benign. But the five-year Treasury jumped, taking
back the drop that came in reaction to the employment report.
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